What's Behind the iPhone 3G Glitches

Dropped calls and choppy Web surfing on Apple's latest smartphone stem from an Infineon chip. A fix is on the way

Complaints over dropped calls and choppy Web connections on Apple's iPhone 3G have sparked a wave of debate in the blogosphere over the root cause of the problems. Two well-placed sources tell BusinessWeek.com the glitches are related to a chip inside Apple's music-playing cell phone. The sources add that Apple (AAPL) plans to remedy the problems through a software upgrade rather than through a more disruptive step, such as a product recall.

The news reinforces analysis by Richard Windsor of Nomura Securities, who said in an Aug. 12 report that the problem involves a communications chip made by Munich-based Infineon Technologies (IFX). Faulty software on the chip causes problems when the iPhone needs to switch from wireless networks that allow for faster Web downloads to slower ones, the people say.

Apple: "No comment"

Users of the iPhone 3G complain they're unable to get the faster connections available on so-called 3G, or third-generation, wireless networks even in some areas where 3G networks are in place. Owners also lament frequent shifting between high-speed and slower-speed networks during calls and Web sessions. The handoffs sometimes result in dropped calls. The problem is affecting 2% to 3% of iPhone traffic, the people say. That compares with a dropped-call rate of around 1% for all traffic for AT&T (T), Apple's exclusive partner in the U.S. "This is a problem, but it's not a catastrophe," one of the sources says.

Still, it's causing enough disruption that the Internet is abuzz with complaints over the phone's performance and speculation over how much blame lies with Infineon's chips. Infineon spokesman Guenther Gaugler declines to comment on the chip's performance in the iPhone 3G, but says the chips haven't resulted in comparable problems in other phones, including those made by Samsung. "Our 3G chips are, for example, used in Samsung handsets and we are not aware of such problems there," Gaugler says.

Apple, which has refused to acknowledge there is a problem with the iPhone's performance, declined to comment for this story. AT&T issued a statement saying, "Overall, the new iPhone is performing just great on our 3G network."

Traffic Spikes

One source says the problem lies squarely with Infineon's technology, which is fairly new and untested in high volumes outside a lab setting. Not only is the iPhone shipping in much higher volumes than other handsets, it's also gobbling up far more 3G minutes as owners use it to surf the Web, watch YouTube (GOOG) videos, and utilize other bandwidth-hogging services.

As much as the chip may be the chief problem, glitches may also stem from Apple's software or the AT&T network. Part of the role of the Infineon chip is to check whether there's enough 3G bandwidth available in a given area. If 3G isn't available or there isn't enough bandwidth, the iPhone will be shifted to a slower network. One source says Apple programmed the Infineon chip to demand a more powerful 3G signal than the iPhone really requires. So if too many people try to make a call or go on the Internet in a given area, some of the devices will decide there's insufficient power and switch to the slower network—even if there is enough 3G bandwidth available.

According to this person, the problems are only occurring in areas of high iPhone density. These include the San Francisco Bay area, Boston, and certain overseas locales. The reason the problem has gotten worse in recent days is because of the steep increase in iPhone activations in these places. The more people who are trying to use a given piece of gear, the more likely they are to get bumped.

Yet another theory is that AT&T hasn't put in place sufficient 3G network equipment to handle the traffic spike in key areas, a charge AT&T insists is untrue.

Growing Pains

Whatever the cause, connection problems are a big disappointment for customers who bought the iPhone 3G precisely because of its promise of more reliable Net access. Apple's home page still advertises the device with the tagline "Twice as Fast. Half the Price." Now reports suggest that Apple customer service reps are telling consumers who are encountering problems to shut off the 3G feature. "I'm so sick of hearing people say 'turn off 3G,'" laments an iPhone 3G owner identified as jazzwill, whose remarks are among 926 replies to a post on Apple's Web site entitled "iPhone 3G Reception Problems? You're Not Alone." "Uh, why pay an extra $10 [for AT&T's iPhone plan] and get a new phone that is advertised to 'just work' then???…. I returned my iPhone 3G because the iPhone 3G stinks in my opinion. I went back to my original iPhone."

The iPhone 3G complaints coincide with dismay over another Apple product, a new online service called MobileMe, that has dealt a rare bruise to Apple's reputation for product reliability. Subscribers who pay the $99 annual MobileMe fee are supposed to have their e-mail, calendars, and other information synched between various devices. But for a few hours on Aug. 11, users were unable to get their e-mail on an iPhone, iPod touch, or on a desktop PC application.

Apple resolved that problem and got MobileMe back up and running. The iPhone networking problems could take a bit longer. Two sources say Apple will likely issue a software update by the end of September—if not by the end of this month—to resolve the issues. Apple and Infineon are currently testing the fix, which will be included in a broader update of the iPhone's software. iPhone owners will be prompted to install the update when they synch their iPhones to a PC, just as they have on many other occasions. In its statement, AT&T said, "We urge our customers to synch iPhone 3G to iTunes frequently to ensure they have the latest software updates."

Nomura's Windsor notes that the glitches are reminiscent of the problems carriers had with handsets from Nokia (NOK) and other manufacturers earlier in the decade when they were rolling out their 3G networks in Europe, adding that they may not have a lasting impact on Apple's reputation, especially if the company is able to avoid a recall. In other words, the iPhone may simply be suffering the growing pains common to cutting-edge technologies that are anything but common.

Business Exchange related topics:AppleBlackberry vs iPhoneSmartphonesWireless CommunicationMobile Industry

Before it's here, it's on the Bloomberg Terminal. LEARN MORE